Correlation Between Modine Manufacturing and NetEase

Can any of the company-specific risk be diversified away by investing in both Modine Manufacturing and NetEase at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Modine Manufacturing and NetEase into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Modine Manufacturing and NetEase, you can compare the effects of market volatilities on Modine Manufacturing and NetEase and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Modine Manufacturing with a short position of NetEase. Check out your portfolio center. Please also check ongoing floating volatility patterns of Modine Manufacturing and NetEase.

Diversification Opportunities for Modine Manufacturing and NetEase

-0.56

Correlation Coefficient

Modine Manufacturing  NetEase

Excellent diversification

The 3 months correlation between Modine and NetEase is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Modine Manufacturing and NetEase in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetEase and Modine Manufacturing is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Modine Manufacturing are associated (or correlated) with NetEase. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NetEase has no effect on the direction of Modine Manufacturing i.e., Modine Manufacturing and NetEase go up and down completely randomly.

Pair Corralation between Modine Manufacturing and NetEase

Considering the 90-day investment horizon Modine Manufacturing is expected to under-perform the NetEase. In addition to that, Modine Manufacturing is 2.36 times more volatile than NetEase. It trades about -0.09 of its total potential returns per unit of risk. NetEase is currently generating about 0.1 per unit of volatility. If you would invest  8,925  in NetEase on December 28, 2024 and sell it today you would earn a total of  1,147  from holding NetEase or generate 12.85% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Modine Manufacturing  vs.  NetEase

Modine Manufacturing

Risk-Adjusted Performance

Very Weak

Over the last 90 days Modine Manufacturing has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

NetEase

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in NetEase are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, NetEase unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Modine Manufacturing and NetEase

The main advantage of trading using opposite Modine Manufacturing and NetEase positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Modine Manufacturing position performs unexpectedly, NetEase can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in NetEase will offset losses from the drop in NetEase's long position.

The idea behind Modine Manufacturing and NetEase pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.